Nutter: Proposed actual-value system not a property-tax hike

Mayor Nutter argues that the switch to actual value merely will take into account the rise in overall property values since 2004, the last time any significant reassessment was done. (LAURENCE KESTERSON / Staff Photographer, file)

By Troy Graham and Bob Warner, Inquirer Staff Writers

Posted: March 08, 2012

Nutter administration officials said Wednesday that they would seek an additional $90 million in property taxes in 2012-13 - but that it's not a tax hike.

The new revenue would be collected as the city switches to a system that values property based on the actual market price for tax purposes.

That change also would preserve tax hikes applied in each of the last two years, all of which had been billed as temporary.

Mayor Nutter, who will lay out details of the city's Actual Value Initiative in his budget address Thursday to City Council, argues that the switch to actual value merely will take into account the rise in overall property values since 2004, the last time any significant reassessment was done.

City assessments long have been inaccurate and incomplete. Nutter declared the system so broken that he placed a moratorium on most reassessments in 2010.

While the Actual Value Initiative seeks to correct those inaccuracies, critics have charged that the process amounts to a backdoor tax increase hidden from meaningful public scrutiny. City Finance Director Rob Dubow rejected that notion Wednesday.

"Values have gone up and we're capturing that value," said Dubow. "I don't know how it's a fast one if we're telling you what we're doing."

Consultants hired by the city said aggregate property value has risen 25 percent since 2004, he said.

The plan could face some criticism from Council members, though most have acknowledged the necessity of moving to actual value.

Councilman Bill Green said the process should be "revenue-neutral," bringing in no more money than the previous year. Otherwise, he said, "we just need to call it what it is.

"You're either taking money out of the homeowners' pockets and putting it in the government's pocket, or you're not," he said. "It's that simple."

Under actual value, some tax bills will remain roughly the same, and some will go down. But property in booming neighborhoods like Northern Liberties and Graduate Hospital could face dramatic spikes.

Dubow said property owners should get their new assessed values by Oct. 1. They will have several avenues to appeal.

"We'll have a better rationale for what we did," Dubow said. "It will be harder to win appeals."

Council must set the property-tax rate - or millage - by the start of the fiscal year July 1, well before the citywide reassessment is complete.

Therefore, the city plans to set a revenue goal for property-tax collections and ask Council to pass a formulaic millage rate. Once the assessments are done, the rate can be plugged in to hit the determined revenue goal.

City Controller Alan Butkovitz questioned whether state and local property-tax laws would allow the administration to proceed with that plan.

"They don't want to deal with the public reaction they're going to get when the new assessments are announced," Butkovitz said. "All of a sudden one day - when it's too late to do anything about it - people will get some kind of notice of what they're required to pay? It sounds like a highly suspicious procedure to me."

Brett Mandel, a tax-policy activist who has advocated for a revenue-neutral shift to actual value, said the administration plan confirmed that Nutter was more concerned about raising revenue than about fixing the city's assessment system.

"It makes me fear that the reaction from City Council and the public will jeopardize the goal here, to fix real estate taxes, because of this overreach in trying to grab revenue," he said. "First you get the values right, get legitimacy into the system, and then you decide how you're going to tax those values."

In fiscal 2013, the city wants to collect $1.13 billion from property taxes, which would be split between the city and the School District of Philadelphia.

The city would get the same amount as last year - $458 million, Dubow said. The schools would get $673 million. At $90 million, that's more than 8 percent above the previous year.

The School District is facing another budget shortfall next fiscal year - the best guess is $248 million - and officials are counting on the extra revenue to keep their budget problems from being worse.

Council passed a two-year 9.9 percent property-tax increase for fiscal 2011 and 2012. Those increases were applied to the city's budget, not the schools. Last year, Council passed another tax increase of about 4 percent, dedicated to the school side.

In the next fiscal year, the property-tax split will return to 40 percent for the city and 60 percent for the schools - the division before the incremental increases.

The administration also is seeking permission from Harrisburg to create a $15,000 homestead exemption in the city - meaning that amount would be removed from a property's assessed value for tax purposes.

Council also could pass a "smoothing" measure that would allow large property-tax increases and decreases to be phased in over three years.

Low-income seniors can apply to prevent their tax bills from rising, Dubow said.

"We want to get to accurate assessments as quickly as possible," he said. "We want to get this done."